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One of the most controversial
amendments has been the one contained in Section 3(d) of the Patents Act.
The relevant provision reads:
Section 3 - What are not inventions - The following are not inventions
within the meaning of this Act, --
| a. |
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| d. |
the mere discovery
of a new form of a known substance which does not result in the
enhancement of the known efficacy of that substance or the mere
discovery of any new property or new use for a known substance or
of the mere use of a known process, machine or apparatus unless such
known process results in a new product or employs at least one new
reactant.
Explanation:- For the purposes of this clause, salts, esters, ethers,
polymorphs, metabolites, pure form, particle size, isomers, mixtures
of isomers, complexes, combinations and other derivatives of known
substance shall be considered to be the same substance, unless they
differ significantly in properties with regard to efficacy. |
As can be seen from the substances mentioned
in the explanation, this provision pertains mostly to pharmaceutical products.
Patentable Subject Matter
Subject to the provisions of paragraphs
2 and 3, patents shall be available for any inventions, whether
products or processes, in all fields of technology, provided that they
are new, involve an inventive step and are capable
of industrial application. Subject to paragraph 4 of Article 65,
paragraph 8 of Article 70 and paragraph 3 of this Article, patents shall
be available and patent rights enjoyable without discrimination as to
the place of invention, the field of technology and whether products
are imported or locally produced.
Section 3(d) shows a fascinating interplay
between the diametrically opposite concepts of 'Invention' and 'Discovery'
as can be seen from the following definitions:
| The relevant subsections
under Section 2(1) of the amended Act which carries the heading 'Definitions
and Interpretations' are: |
| (i) |
"invention"means
a new product or process involving an inventive step and capable of
industrial application. |
| (ii) |
"inventive
step" means a feature of an invention that involves technical
advance as compared to the existing knowledge or having economic significance
or both and that makes the invention not obvious to a person skilled
in the art." |
On the other hand, a discovery means
detection as a result of uncovering, revealing and laying open to view
that what was hidden, concealed or unknown.
Section 3(d) thus, seems to allow patenting of a "discovery"
of a new form of a known substance if it results in the enhancement of
the known efficacy of that substance. Efficacy is not defined in the statute
and more importantly, does not find mention in the TRIPS Agreement or
for that matter, in any other statute in the world. This is in direct
conflict with the definition of an "invention" as well as "inventive
step". For something to be discovered it must already exist. It is
antithetical to the very concept of patents which rewards human intervention
and creation. The use of the term 'derivative' in the explanation to Section
3(d) implies human intervention and an inventive step and not a discovery.
The law seems to recognise the supremacy of an invention to discovery
and proposes to give the latter the status of an invention if it passes
the test of efficacy. This seems to lack logic.
| The Government is well-aware
that the amendments are tenuous and may be anti-TRIPS. It has formed
an Expert Committee with the following terms of reference: |
| (i) |
Whether it would be TRIPS
compatible to limit the grant of patents for pharmaceutical substances
to a new chemical entity or to new medical entities involving one
or more inventive steps; and |
| (ii) |
Whether
it would be TRIPS-compatible to exclude micro-organisms from patenting. |
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THIRD PROVISO TO SECTION 11A (7)
Another amendment that makes a departure from TRIPS is the third proviso
to Section 11A(7):
"Provided also that after a patent
is granted in respect of application made under sub-section (2) of Section
5, the patent-holder shall only be entitled to receive reasonable royalty
from such enterprises which have made significant investment and were
producing and marketing the concerned product prior to the 1st day of
January, 2005 and which continue to manufacture the product covered
by the patent on the date of grant of the patent and no infringement
proceedings shall be instituted against such enterprises."
This provision resembles Article 70(4) of
TRIPS, set out below, but is at variance on critical aspects:
" In respect of any acts in respect
of specific objects embodying protected subject matter which become
infringing under the terms of legislation in conformity with this agreement,
and which were commenced, or in respect of which a significant investment
was made, before the date of acceptance of the WTO Agreement by that
member, any member may provide for a limitation of the remedies available
to the right holder as to the continued performance of such acts after
the date of application of this Agreement for that member. In such cases
the member shall, however, at least provide for the payment of equitable
remuneration."
The table below compares the two provisions
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| S. 11A (7) Third Proviso |
Article 70(4) TRIPS |
- Applies only to black box applications, i.e. applications filed
between January 1, 1995 and January 1, 2005 (the period offered
to developing countries to become TRIPS compliant) in respect
of food, medicines or drugs and substances prepared or produced
by chemical processes.
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- Significant investment - not defined
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- Significant investment - not defined
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- Enterprise should have made significant
investment and was producing and marketing the concerned product
prior to the 1st day of January, 2005 and continued to do so thereafter
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- Any acts in respect of the protected subject matter which
were commenced or in respect of which a significant investment
was made prior to the 1st day of January, 1995.
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Comment: There is a ten
year difference in the computation of the relevant time period. However,
the Indian amendment prescribes a stricter standard in requiring both
significant investment and commencement of production and marketing
prior to January 1, 2005. |
- Patent holder entitled to receive only 'reasonable royalty'
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- Patent holder entitled to receive at least 'equitable remuneration'
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Comment: The term
'equitable remuneration' is wider in meaning and import than 'reasonable
royalty'. |
- Extinguishes the rights of the patentee
|
- Member may provide for limitation
of the remedies available to the patentee
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The history of Article 70(4) indicates that
it was meant to protect acts and investments by potential infringers in
respect of subject matter that got protected by domestic law modified
by virtue of the TRIPS Agreement at the time the Agreement came into existence,
i.e. January 1, 1995. The Article certainly was not meant to be used as
a basis to protect vested rights created at any point in time.
The amendment, as it currently stands, condones the acts of infringers
who have had the benefit of studying the specification of corresponding
patents in other jurisdictions, and thereafter reverse-engineering the
drugs in question. Surely, the TRIPS Agreement was not intended to bless
such an endeavour.
It may be argued that there are some 'qualifications' which an infringer
must have in order to come within the protection of the third proviso.
That is, the patent-holder shall only be entitled to receive reasonable
royalty, and no infringement proceedings shall be instituted against enterprises
-
| (i) |
which have made significant
investment; |
| (ii) |
and were producing and marketing
the concerned product prior to the 1st day of January, 2005; and |
| (iii) |
which continue to manufacture
the product covered by the patent on the date of grant of the patent. |
The corollary to the above is that theoretically
it may be possible to file infringement proceedings against those enterprises
that do not meet one or more of the above qualifications to trigger negotiations
for a "reasonable royalty".
However, as regards the entities falling within the protection of the
third proviso, the embargo against filing of suit proceedings seems to
be absolute as is indicated by the use of the word 'only' in the clause
"...the patent holder shall only be entitled to receive
reasonable royalty..."as well as the word 'and' in the clause
"... and no infringement proceedings shall be instituted
against such enterprises."Arguably, this embargo continues to
remain absolute even if negotiations between the parties as regards the
reasonableness of the royalty fail. In that event, the only aspect that
will come before the Court will be the matter of what constitutes reasonable
royalty. If it decides what is reasonable royalty, the suit cannot proceed.
A note on 'reasonable royalty'':
Insofar as 'reasonable royalty' is concerned,
this is a grey area. Some guidelines can be derived from Section 90 of
the Patents Act which speaks of terms and conditions of compulsory licenses.
There, the royalty is to be paid with regard to the 'nature of the invention',
'the expenditure incurred by the patentee in making and/or in developing
it', the expenditure incurred in 'obtaining a patent and keeping it in
force' and 'other relevant factors'. However, the Patent Rules do not
provide any guidelines for the operation of Section 11A (7).
The patent holder, however, can take some comfort from certain 'liberal'
government policies in place which might be brought to the attention of
the Courts to decide on the quantum of royalty payable. To elaborate,
the current guidelines on royalty for know-how provide for an upfront
fee of up to US$ 2 million and in addition a royalty at the rate of 5%
(on domestic sales) and 8% (on exports) of the ex-factory sale price of
the enterprises' products. This may help in arriving at "reasonable
royalty".
Finally, since under the current policy, a royalty arrangement can be
entered into for an unlimited period of time, payment of "reasonable
royalty "would certainly cover the duration of the patent. Of course,
if the agreement involves transfer of know-how, royalty thereon can be
derived in perpetuity.
The compensation payable by the Government to use the invention may also
be mentioned. Until May 19, 2003, Section 100 of the Patents Act, 1970,
read as follows:
"Provided that in the case of any
such use of any patent in respect of any medicine or drug or article
of food, the royalty and other remuneration shall in no case exceed
four percent of the net ex-factory sale price in bulk of the patented
article (exclusive of taxes levied under any law for the time being
in force and any commissions payable) determined in such manner as may
be prescribed."
From May 20, 2003, this provision has been
changed and there are no upper limits prescribed. The current text reads
as follows:
"Provided that in case of any such
use of any patent, the patentee shall be paid not more than adequate
remuneration in the circumstances of each case, taking into account
the economic value of the use of the patent."
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COMPULSORY LICENSING
Under the TRIPS Agreement, provisions which
are mandatory cannot be tampered with or watered down unilaterally by
Member nations when implementing them in domestic law. Their applicability
can only be altered either by suspension or changes introduced by consensus
reached between Member countries. The Doha Declaration and the subsequent
amendment in the Indian Patents Act, 1970, is a good example in this
regard.
On the implementation of paragraph 6 of the Doha Declaration on the
TRIPS Agreement and Public Health, on September 1, 2003, the General
Council for TRIPS held:
Noting the Declaration on the TRIPS Agreement and Public Health (the
"Declaration") and, in particular, the instruction of the
Ministerial Conference to the Council for TRIPS contained in paragraph
6 of the Declaration to find an expeditious solution to the problem
of the difficulties that WTO Members with insufficient or
no manufacturing capacities in the pharmaceutical sector could face
in making effective use of compulsory licensing under the TRIPS Agreement,
The obligations of an exporting Member under Article 31(f) of
the TRIPS Agreement shall be waived with respect to the grant by it
of a compulsory licence to the extent necessary for the purposes of
production of a pharmaceutical product(s) and its export to an eligible
importing Member(s) in accordance with the terms set out below in this
paragraph:
Article 31(f) of TRIPS, referred to in the Declaration, reads as follows:
Where the law of a Member allows for other use of the subject matter
of a patent without the authorisation of the right holder, including use
by the government or third parties authorized by the government, the following
provisions shall be respected:
| (a) |
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| (f) |
any such use shall be
authorised predominantly for the supply of the domestic market of
the Member authorising such use; |
| (ta) |
"pharmaceutical
substance"means any new entity involving one or more inventive
steps; |
India, too, has given effect to this Declaration
by inserting S. 92A in the Patents Act under the third amendment. The
section reads:
"92A. Compulsory licence for export
of patented pharmaceutical products in certain exceptional circumstances.-(1)
Compulsory licence shall be available for manufacture and export of patented
pharmaceutical products to any country having insufficient or no manufacturing
capacity in the pharmaceutical sector for the concerned product to address
public health problems, provided compulsory licence has been granted
by such country or such country has, by notification or otherwise,
allowed importation of the patented pharmaceutical products from India."
Further, because this is a special provision,
a party seeking a compulsory licence on this ground does not have to wait
for three years after grant of patent as is required in the case of a
"normal" compulsory licence.
The draft Patent Manual of Practice and Procedure proposed by the Indian
Patent Office and now under consideration has this to say on this provision:
"This provision is to be construed
in a wider sense to allow export to any country having insufficient
or no manufacturing capacity in the pharmaceutical sector whether
it is a member of WTO or not. As this section is intended to address
the public health problems faced by a country having insufficient or
no manufacturing capacity in the pharmaceutical sector and to facilitate
access to affordable medicines for the people in these countries, it
should be used in good faith and not with the primary purpose of addressing
other objectives in particular objectives of a purely commercial nature.
It may be noted that this section is an "enabling provision"for
the export of pharmaceutical products to any country having insufficient
or no manufacturing capacity in the pharmaceutical sector in certain
exceptional circumstances to address public health problems. The term
"provided compulsory licence has been granted by such country"has
therefore to be given a liberal meaning and it should be considered
to include 'a licence in any form' from such countries also where there
is no patent protection or where the drugs in question are not patented."
This is not to say that a manufacturer in
India can export drugs under a compulsory licence only in cases of public
health emergency as stated above. Although under the TRIPS Agreement,
compulsory licensing in the normal course is predominantly meant to cater
to the domestic market, under the amended Patents Act fulfilling the needs
of foreign markets is also a ground to apply for a compulsory licence
- as documented in Section 84(7) of the Act (though this can be done only
after three years). This provision reads as follows:
"For the purposes of this Chapter,
the reasonable requirements of the public shall be deemed not to have
been satisfied-
| (a) |
if, by any reason, of the refusal of
the patentee to grant a licence or licences on reasonable terms,...
(iii) a market for export of the
patented article has not been met to an adequate extent or on
reasonable terms.
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It is interesting to note that save for Section
92A - enacted to give effect to the Doha Declaration of the WTO - no other
amendment, when tabled in Parliament, carried with it any explanation,
as is the norm; these amendments were added at the last minute due to
political exigencies.
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